Tourism is a fraught industry. There’s always something that can keep visitors away—from health scares to economic malaise—out of the control of managers trying to operate resorts. Trying to adjust to meet new challenges can frustrate even the best-prepared Las Vegas executive.
Take, for example, the value of the euro. Since 2003, the dollar has been relatively weak against the euro. This is bad news if you’ve taken a European vacation; your dollars don’t go very far. But for American cities that host European travelers, it’s been a bonanza. Western Europeans have flooded Las Vegas in recent years, spending freely, even when domestic visitation has dropped.
But the strong euro ride has come to an end, at least for now. Last November, one euro was worth 1.5 dollars; by last week, the exchange rate had fallen to one euro equaling 1.12 dollars (before recovering somewhat), and experts were guessing that by summer, euros and dollars would be trading at par.
It doesn’t matter that the euro’s swoon wasn’t caused by anything anyone in Las Vegas did. The city’s tourism industry will have to deal with the consequences, which might include not only fewer visitors and less spending from Western Europe, but also the siphoning of potential tourists from prime Las Vegas markets such as the United Kingdom. With their pounds buying more in Europe, it makes sense that some Brits will be tempted to vacation closer to home this summer.
This is a big deal; in 2008 (the last year for which numbers are available), 15 percent of all visitors to Las Vegas came from outside the United States. Their economic impact, though, is greater than this number suggests, because they tend to spend more than domestic visitors, particularly when their pounds, euros or yuan are trading favorably in relation to the dollar.
Of that 15 percent, a quarter came from Western Europe, and 10 percent came from the United Kingdom.
Las Vegas casino resorts have to analyze and react to these sorts of geo-economic changes all the time. According to Patrick Bosworth, director of yielding and business strategy at Wynn Resorts, currency fluctuations aren’t the biggest driver of international demand, but they are a significant part of the picture.
“According to a regression we’ve run, if the U.S. dollar’s value goes up by 1 percent against foreign currencies, that translates into a .1 percent drop in international visitation.”
In Bosworth’s analysis, the recent drop in the euro’s value could translate into a 1.5 to 2 percent decline in European visitation. This isn’t sky-is-falling stuff, but in a business struggling for every dollar right now, it makes a difference. And currency is just one of the many variables that Bosworth and others like him look at when trying to help resort executives plan for the future.
“By far the biggest impact on international travel is normal seasonality,” Bosworth says. “Visitation peaks in summer and fall, the standard European holiday season. But there are many other factors. Currency is important, but we have over 30 different variables we consider.”
Two of the other major drivers are unemployment rates and consumer confidence. The former, Bosworth says, moves steadily while the latter is difficult to handicap. While fluctuations in currency exchange rates can impact short-term bookings, they aren’t as important to the bigger, long-term picture as unemployment and consumer confidence.
So while currency drops do impact Las Vegas, they are part of a much bigger picture that, like the city itself, is constantly changing. Understanding how that change will play out might be one area of casino management that remains, fundamentally, a gamble, no matter how thorough the handicapping.